Is the leasing market peaking? October 2007

With lease rates still climbing, a continuing shortage in second–hand aircraft and very few spare production slots available at Boeing and Airbus until after 2010, the leasing industry is enjoying its best times since 1996- 1999. But is the cyclical upturn that started in 2004 at the very top of its peak, or will the bullish market continue for another few years?

Most of the industry holds strong views that good times are here to stay for a while longer, with the peak not being reached until 2009 or 2010 and a downturn only in 2012–2013. Some are even speaking of a "super–cycle" in the industry. The rationale goes that this leasing upturn is different to others, since this time it is not dependent on US and European airlines but rather on long–term, rising demand from China, India and other emerging Asian markets. Combine this with other factors such as consolidation in the US industry and impending modernisation of the ageing fleet there, along with signs that many airlines have decided to permanently put a larger proportion of their fleet on leases in order to increase flexibility, and the consensus view is that there is no market bubble waiting to burst.

The circumstantial evidence that the peak has not yet been reached is substantial. Many airlines are signing longer leases (up to 10 years in some cases) and the strong narrowbody market has been joined by a strengthening widebody market as airlines try to plug the gap before the A380 is eventually delivered. The operating lessors' share of the world fleet has risen from an estimated 19% to 31% over the last decade (according to research from Aircastle), with some lessors claiming this will continue to rise, reaching 50% in the next decade.

Having said all that, there is a small (but growing?) view that 2007 and 2008 will be the peak of the cycle, with the market likely to soften in 2009 or even before then. One analyst (who, unsurprisingly, prefers not to be named) says there is a lot of "froth" in the leasing market, and that direct evidence for this is the amount of leasing assets and companies that are changing hands, which always tends to happen at the very top of the market. It is a long list. Recently there have been floats for AerCap, Aircastle and GECAS’s Genesis, while the Bank of China bought SALE, Terra Firma acquired AWAS and Pegasus, a Macquarie–led consortium bought GATX’s portfolio, and Standard Chartered is buying Pembroke.

Of course there has always been a steady change of ownership in the aircraft leasing industry, but it is the growing interest of private equity funds in today’s market that some see as a crucial warning sign that the market is at or even past its peak. The activity of UK buyout specialist Terra Firma is particularly attracting criticism, with one analyst regarding its acquisition of AWAS as having "curious timing", while others believe that the company paid too much for AWAS, having chased the deal after reportedly losing out on earlier attempts to acquire debis and Boullioun.

The "bulls" say this criticism is unfair, given that there is more than just one large private equity company looking to buy leasing assets at the moment, with banks that were reluctant to own aviation assets in the years after September 11 also now looking to buy lessors, while there is continuing interest from some lessors to merge with competitors. Indeed Babcock & Brown, Macquarie Bank, Allco Finance, the UK’s Standard Chartered Bank, Mitsubishi Corp. and Dubai Aerospace Enterprise are all reported to have bid unsuccessfully for Pegasus or SALE, and may be on the look–out for other potential acquisitions.

And they are being joined from growing interest out of China in the aircraft asset management sector, fuelled by the booming aviation industry there and by government "encouragement" to buy foreign assets. The Bank of China is believed to be looking for further leasing acquisitions, while Beijing–based China Minsheng Bank (the largest privately–owned bank in China) is talking with potential partners, both foreign and domestic, in order to set up a leasing entity, and at least four other Chinese banks are looking to set up leasing ventures.

Yet, unlike most banks and leasing companies, private equity companies tend to have relatively short–term investment horizons, and it’s likely that Terra Firma will be looking to sell its assets and make a large profit in around two to four years from now — which some say will be right in the middle of the leasing down cycle.

Among other points that the pessimists bring up are:

• Lease rates have risen faster much than underlying aircraft asset values, which is not sustainable in the medium–term — either asset values will have to increase (which is what Terra Firma may be betting on), or else lease rates will have to come down. Already lease rates appear to be flattening on some models.
• The engine room of the leasing recovery — narrowbodies — is vulnerable, because as plans for the replacement programmes for the 737s and A320s are firmed up, this may affect demand for older models in the next few years (with some airlines becoming reluctant to commit to 10–year 737 and A320 leases if new aircraft are likely to be available around 2016- 2018).
• Asian demand is overestimated. John Plueger, COO at ILFC, warns that the Indian aviation infrastructure cannot support the aircraft that its airlines have already ordered, and that in China — while demand remains high — lease rates are relatively low. ILFC currently prefer to sign new business elsewhere, where it can get higher yields (although one analyst counters that ILFC is traditionally "sniffy" about emerging markets.)
• The US credit market crunch may have a trickle down effect into the aircraft leasing market, restricting the ability of some companies to fund portfolio expansion as aggressively as they had previously planned.

So are companies like Terra Firma likely to make stunning profits as the leasing industry peak/super–cycle extends for a few more years, or will the real winners be those companies that will be able to say they have got out at the very top of the market (such as Morgan Stanley, the GATX Corporation, Oaktree, Singapore Airlines and WestLB), prior to a downturn? If the latter occurs, then Terra Firma will have to wait until the next peak before it can sell at a profit — which it may well be prepared to do, but which surely is not what Guy Hands (the CEO of Terra Firma and a legendary UK financier who founded the company after leaving Nomura in 2002) is banking on?

Interestingly, the two powerhouses of the industry — GECAS and ILFC — appear to be partly cashing in too. GECAS raised a substantial sum by floating off a portfolio of aircraft to Genesis, and ILFC is believed to be looking to set up similar deals and has said that it is seeing increased approaches from third party investors and debt and equity providers regarding the potential purchase of aircraft from the ILFC fleet.

The final trend, which may prove to be the most important, is an attempt to shift the geographical centre of the leasing business from Dublin to Dubai. Irish corporate tax rates at 12% maximum were instrumental in building the leasing industry there, pre- and post–GPA; Dubai and other Middle Eastern states are now offering zero percent taxation and other structural support.

General Electric Capital Aviation Services (GECAS)

The lessors (see table below) now have 844 outstanding orders, compared to 662 almost two years ago (see Aviation Strategy, December 2005). The "Big Two" — GECAS and ILFC — have a combined fleet of 2,757 aircraft, and as they dominate the outstanding order book (with a combined 399 aircraft, or almost half of all outstanding orders placed by lessors), they look set to continue their domination of the industry for many years to come. Nevertheless, many second–tier leasing companies have been increasing their portfolios, some third–tier companies are making a major push to increase their asset base, and — even given the state of the market — there appears to be a higher–than–usual number of new entrants into the leasing industry. GECAS comfortably remains the world’s largest lessor, owning 1,450 aircraft and managing another 300 on behalf of clients. The portfolio has continued to grow over the last few years, with owned aircraft increasing by 150 in just 18 months and the portfolio’s asset value rising from $30.5bn in 2002 to $44bn today.

Part of General Electric, GECAS also has the largest sales network of any lessor, with 23 offices around the world placing its owned aircraft with 230 customers in 70 countries. In 2006 GECAS saw revenue rise 19.2% to $4.2bn, with a "segment profit" of $1.1bn, a substantial 45% up on 2005. According to GE’s annual report, in 2006 GECAS benefited from a "reorganisation of aircraft leasing operations", which led to "growth in lower–taxed earnings from global operations". With increasing amounts of business in China, India, Brazil and Russia, GECAS’s bottom line is boosted considerably from a lower tax liability on revenue generated outside the US. Indeed the lessor is continuing to push into the Chinese market and currently has 14 Chinese airline clients, with its latest deal signed in August last year for nine 737- 800s for Xiamen Airlines, to be delivered in 2008.

International Lease Finance Corporation (ILFC)

Interestingly, last year GECAS appeared to recognise that the leasing cycle is close to its peak by selling 41 aircraft to a new entity called Genesis Lease, which was floated on the New York stock exchange (see below). Soon afterward, in January this year, GECAS announced an order for 39 Boeing aircraft — 24 737- 800s and 15 777s, with delivery of all aircraft in 2008–2010, while orders for six 777Fs and 60 A320s were revealed at the Paris air show. GECAS’s current order book stands at 89 Boeing aircraft (64 737s, two 747s and 23 777s) and 88 Airbus aircraft (18 A319s and 70 A320s). ILFC, a subsidiary of US financial services giant AIG, has a portfolio of 1,007 aircraft, 894 of which are fully owned and the rest either on finance leases or managed on behalf of clients. The overall total has increased by more than 100 aircraft in just over a year, reflecting deliveries from the large amount of orders that ILFC had placed previously with both Airbus and Boeing.

Based in California, ILFC now has 222 aircraft on outstanding order with the two manufacturers, for delivery through to 2015: 99 Airbus aircraft (25 A319s, 30 A320s, eight A321s, 10 A330s, 16 A350s and 10 A380s) and 123 Boeing aircraft (32 737–700s, eight 737–800s, nine 777- 300ERs and 74 787s — of which 63 aircraft were announced at the Paris air show in June). Though this total has come down considerably from the 360 aircraft it had on order back in 2004, this is still the largest order book of any lessor, and sources in the US indicate that ILFC is soon to announce an order for another 50 787s.

Three–quarters of the aircraft on order will be delivered by the end of 2009, and around 50 aircraft are due to arrive in the remainder of 2007 alone — although all of the 2007 arrivals have already been placed with customers, and every aircraft in the ILFC portfolio is believed to be out with a customer.

Around 90% of ILFC’s aircraft are placed with airlines outside of the US, and almost 50% of ILFC’s entire fleet is placed with European airlines, which is a direct consequence of ILFC’s strategy to "maximise lease placements in regions that are strengthening, such as in Asia, Europe and the Middle East, and to minimize placements in regions that are under stress".

Boeing Capital Corporation (BCC)

Though ILFC took another $20m hit during 2006 arising from termination of leases on 11 aircraft placed with Varig, for the year ILFC posted a net profit of $499m, 13.9% up on 2005 and based on revenue of $4.1bn, 14.7% up on the previous year. BCC has approximately 500 aircraft in its portfolio, which the company claims are worth $9.5bn. BCC finances aircraft sold by Boeing where "third party financing is not available" — i.e. it is essentially a lender of last resort, and although BCC admits that while it can provide financing for most of Boeing’s orders, "customers typically seek lower cost financing from others sources". This largely means that BCC ends up financing higher risk customers.

As at the end of March 2007, BCC’s portfolio was heavily concentrated on US airlines, with just five carriers — AirTran, United, American, Midwest and Hawaiian — accounting for 51.2% of BCC’s portfolio value In fact exposure to US carriers is increasing at BCC (which probably affects the relative difficulty US airlines are having in arranging aircraft finance of their own, compared with non–US airlines), and BCC says that "certain customers have requested a restructuring of their transactions with BCC". 75.3% of BCC’s portfolio value was placed with US airlines at the end of March 2007 (compared with 73.7% at the end of 2005), with 12.8% in Europe (12.7% in 2005), 6.6% in Asia (6.8%), and 5.3% elsewhere in the world (6.8%). Boeing warns that "the credit ratings of some airlines — particularly in the US — have remained at low levels", so that while passenger load factors are at record levels, there is a limited supply of used aircraft, and lease rates are increasing, "values for the various aircraft types that are collateral in BCC’s portfolio generally have not increased".

BCC employees 200 staff and has four offices in the US, as well as in Brussels, Stockholm, Moscow and Hong Kong. The business has two divisions — Space & Defence, and Aircraft Financial Services, although most of BCC’s assets and business is in the aviation sector. In 2006 BCC’s revenue rose 6.1% to just over a $1bn, and net income increased by 39.6%, to $194m, thanks partly to a higher net gain on disposal of assets, while in the first quarter of 2007 revenue fell 10.1%, to $213m, and net income rose by just 2%, to $50m, which BCC says is related to "the sale of certain aircraft in 2006".

AerCap

As a lender of last resort, BCC is also overexposed to older aircraft models, and at the end of March this year, $2.6bn of its portfolio by value was in 717s and $0.7bn in MD- 11s. Just over 9% of the portfolio by value is in aircraft more than 16 years' old, with another 11.6% in aircraft made between 1992 and 1996, and 39.6% manufactured in 1997–2001. Based in the Netherlands, AerCap has a portfolio of 340 owned and managed aircraft, worth around $4bn, including narrowbodies (A320 family, A300s, MD–80s, 737s and 757s), widebodies (A330s, A340s, 767s and MD–11s) and regional jets (F100s, F70s). These are currently placed with more than 80 airlines in 45 countries, the majority of which are in Europe (43 clients), Asia (23) and North and South America (20).

AerCap, which also has offices in the US and Ireland, was known as debis AirFinance until it was bought from DaimlerChrysler and a consortium of banks by New York–based private equity firm Cerberus Capital in 2005. However, Cerberus floated AerCap on the NYSE in November last year, raising $444m for existing shareholders and $156m for the lessor, the latter used primarily to repay debt and to pay for its 2006 purchase of Miamibased AeroTurbine, an engine lessor. This last deal was a continuation of a diversification strategy for AerCap, and in 2006 just 54.5% of revenue came from leases, with a substantial 37% coming from aircraft sales. In 2006 AerCap recorded a net profit of $88m, 6% up on 2005, based on revenue of $814m, 65% higher than in 2005.

AerCap’s portfolio has risen substantially in the last few years, with an extra 103 aircraft added in 2006 alone. In April last year AerCap signed a $1bn credit facility with UBS to finance new aircraft purchases over the next few years (which came just seven months after an aircraft securitisation raised another $1bn). In August 2006 AerCap bought a 22–strong portfolio of aircraft with a "diversified age profile" from GATX, including A319s, A320s, 737–300s and 757–200s, and which were placed with 10 airlines around the world.

CIT Aerospace

In December 2006 AerCap ordered 20 A330–200s, for delivery from 2008 to 2010, and in May this year ordered another 10 A330–200s, which join two A320s and an A321 already on order. Another $1.7bn worth of aircraft securitisation bonds was issued in May, and this July AerCap announced it was planning a secondary public offering of up to 23m shares for later this year. The New York–based lessor has a mixed portfolio of 300 aircraft — including A310s,A320 family, A330, 737s, 747s, 757s, 767s and 777s — placed with 94 customers. The average age of the fleet is six years, and as at the end of March 2007 the portfolio was worth an estimated $7.3bn, of which $5.4bn was in narrowbody aircraft, while Airbus aircraft accounted for 56.7% of the portfolio by value and Boeing 43.2%.

CIT also has offices in Ft. Lauderdale, Toronto and Dublin, and opened a Singapore office this May, which will aim to build on the 24% of the CIT Aerospace portfolio by value that is currently placed with Asian airlines (with 39% in Europe, 17% in the US and Canada, and 13% in Latin America).

Babcock & Brown

The lessor is part of the CIT Group, a NYSE–quoted commercial and consumer finance group, and is making a concerted effort to draw ahead of its second–tier rivals by building a large order book that is second only to that of GECAS and ILFC. In April this year CIT ordered five 737s–700s, while at the Paris air show it announced orders for 25 A320s and two A350s and in July ordered five more 787s. Altogether CIT has outstanding orders for 90 Airbus aircraft (21 A319s, 42 A320s, five A321s, 15 A330–200s and seven A350s) and 20 Boeing aircraft (10 737s and 10 787s, with five of the 787s ordered this July). CIT also plans to follow the lead of GECAS/Genesis by hiving off a portfolio of 45 aircraft before the end of the year, in order to release capital and reduce its asset exposure. Babcock & Brown Aircraft Management BBAM) manages a portfolio of 219 aircraft — most of which are narrowbodies — and worth an estimated $5.8bn. The fleet has increased by more than 50% in the last 18 months, and as it has grown its average age has come down, from eight years in 2005 to 7.7 years at present. All but two or three aircraft are currently on lease, to a total of 70 clients.

Aviation Capital Group

The aircraft business unit is one of four in Babcock & Brown’s operating lease division, and its financial results are not separated out in the parent company’s financial results (although the holding company is listed on the Australian Stock Exchange). However, the leasing unit does say that its results in 2006 were driven primarily by two businesses, one of which is aircraft, and that there was "a continuation of demand in the aircraft leasing sector". In September the aircraft unit spun off an entity called "Babcock & Brown Air" via an IPO on the NYSE, which raised $340m to fund the acquisition of an initial portfolio of 47 aircraft with an average age of less than six years from BBAM (which retains a 13% stake in Babcock & Brown Air). Based in Newport Beach, California, ACG has a portfolio of 228 aircraft worth approximately $6bn and is primarily a late–model narrowbody specialist, although it does have a handful of freighters and widebody aircraft. Launched in 1989, ACG is a subsidiary of US insurance giant Pacific LifeCorp, and the lessor also has offices in Seattle, Connecticut, London and Santiago in Chile, which have placed the portfolio with 99 airlines in 43 countries.

The current fleet is slightly larger than the 220–strong portfolio it had in June 2005, after ACG bought Seattle–based Boullioun Aviation Services from WestLB for a reported €2.7bn, with Boullioun’s 120 aircraft joining the 100 aircraft in ACG’s existing portfolio. Although ACG added 15 aircraft to the portfolio in 2006, others were sold, and ACG’s revenue rose 69% in 2006, to $563m (thanks primarily to the impact of the Boullioun acquisition).

RBS Aviation Capital

Pegasus Aviation

However, in April this year ACG ordered 20 narrowbody Airbus aircraft — 14 A320s, four A319s and two A321s — and at the same time ordered 20 Boeing aircraft: 15 737NGs and five 787s, worth around $1.6bn at list prices. In September this was followed up by an order for 15 737NGs, worth some $0.9bn at list prices, and altogether ACG has an order book of 69 aircraft. Dublin–based RBS Aviation Capital is both a lessor and a provider of aviation financing to clients around the world, with offices in London, Connecticut, Hong Kong,Shanghai and Tokyo. Launched by the Royal Bank of Scotland in 2001, the aircraft leasing side has been expanding fast, and it currently has a portfolio of more than 200 aircraft that have an average age of 3.5 years. They are placed with 63 leasing customers, of which the majority are in Europe (28 customers, including Iberia, easyJet, Virgin Atlantic, Aeroflot, Lufthansa and Air France), Asia (17 clients, including six in China) and North America (12, including American, United and Continental). RBS Aviation Capital currently has 29 aircraft on order, with 20 from Airbus (all A320s) and nine from Boeing (all 737–800s). In May 2007 Terra Firma, a European private equity group, bought Pegasus Aviation Finance for $5.2bn from owners that included its management team and investment fund Oaktree Capital Management. Terra says that AWAS (its other lessor acquisition — see below) and Pegasus combined are the third largest aircraft lessor, although our table shows that the combined fleet (and it is not legally a single company yet) would actually "only" be the fifth–largest.

San Francisco–based Pegasus was founded in 1988, but Oaktree Capital Management invested $250m into the lessor in March 2004, after which the company embarked on a major overhaul of its fleet which traditionally had focussed on older aircraft. Pegasus currently has a portfolio of 82 owned aircraft, with another 94 aircraft managed for third parties, and the fleet has a wide range of types, both cargo and passenger.

Pegasus has offices in Miami, London, Singapore and Buenos Aires, and is making a big push into the Chinese market, with the current client list including Air China, China Eastern, Shanghai, China Southern, Jade Cargo and Sichuan. The lessor has 62 employees, and currently its CEO and president is Richard Wiley, who was one of the company’s original founders,

AWAS

In 2006 Pegasus placed orders for $1bn of new aircraft, including six 787s for delivery in 2009–2011, six A330–200s and two A350XWBs, which was the lessor’s first ever order with Airbus. However, any additions to the total of 17 aircraft on outstanding order will depend on the plans that Terra Firma has for Pegasus and AWAS. AWAS was launched back in 1985 and is currently owned by Terra Firma, which bought the lessor in March 2006 from Morgan Stanley (which in turn had bought the lessor in 2000) for $2.5bn plus outstanding liabilities.

Soon after, in July, AWAS appointed a new CEO and president — Franklin Pray, previously managing director of CIT Aerospace, who replaced Charles Graham, who had been CEO of AWAS since 1997. There has also been a raft of senior management appointments at AWAS through the first part of 2007, including new a CFO, head of technical operation and a senior vice president, with the last two being poached from rival lessors.

AWAS is now based in Dublin (it was previously headquartered in Seattle), and currently has a portfolio of 140 aircraft with an average age of around 10 years, comprising eight A300s, six A320s, two A321s, one A330, one A340, 35 737–300s, eight 737–400s, 12 737–500s, four 737–700s, two 747s, 17 757s, 23 767s, one 777, 17 MD–80s and three Fokker 70s.

The portfolio has been cut back by 15 aircraft in the last 18 months, (its latest disposal came in January, when it sold three 767- 300ERs to Hawaiian Airlines), and it currently does not have any orders disclosed with the major manufacturers.

ORIX Aviation

The fleet is placed with 74 customers in 47 countries, of which 14 are in North and South America, 41 are in Europe, the Middle East and Africa, and 19 in Asia. AWAS currently has five other offices around the world — in Seattle, New York, Miami, Singapore and Sydney — and 90 employees. Dublin–based ORIX Aviation was founded in 1991. Owned by Japan’s Orix Corporation — a financial services group — it has steadily grown its fleet over the last few years, from 68 in 2004 to 120 aircraft today, with the portfolio (plus engines) worth an estimated $3.25bn.

Whereas it used to be a narrowbody specialist, its fleet now includes a wider range of aircraft, including A319s,A320s, A321s A330s, A340s, 737s, 747s, 757s, 767s, 777s, MD81s and MD80s. The portfolio is fully leased out with clients, although in the first half of 2008 it will have two A319s, three A320s and five 737s available for lease.

Macquarie Aircraft Leasing Limited (MALL)

Despite the overall growth, like other lessors ORIX has taken the opportunity of a strong market to prune its portfolio, selling two MD82s to MidAmerican Aerospace in January this year and two A320s to AeroTurbine in June. ORIX currently does not any aircraft on outstanding order, but in September acquired eight aircraft from Q Aviation. MALL — a consortium led by Macquarie Bank that includes the Och–Ziff Capital Management Group hedge fund — completed the acquisition of the assets of GATX Air, previously owned by the GATX Corporation, in January this year for around US$1.46bn. According to Bran Kenney, the CEO of the GATX Corporation, it sold its aviation leasing assets as it did not have "a competitive advantage in the commodity business of aircraft leasing", and therefore could not compete effectively with "the two largest players in the industry, which have portfolios many times the size of other lessors". That is a view not shared by MALL, which acquired GATX’s assets of 39 owned aircraft and stakes in 49 aircraft held in "various joint venture partnerships"

BCI Aircraft Leasing

At the time of acquisition GATX Air had 60 employees based in its headquarters in San Francisco as well as in offices in London, Toulouse and Tokyo. All the aircraft are narrowbodies, (with more than 80% of the portfolio by value comprising A320s and 737–800s), with an average age of five and a half years and placed with 37 airlines in 23 countries. Chicago–based BCI Aircraft Leasing also has offices in Los Angeles and the Netherlands (and is just opening an office in Buenos Aires) and specialises in "mid–life" narrowbodies (which it defines as aircraft of between five and 15 years of age) as "this market is not currently competitive, with a handful of players being active", although it also has a handful of widebodies in an 86- strong portfolio.

Pembroke

It had an estimated $1bn in assets at the end of 2006, compared with less than $800m a year earlier, and is continuing to grow steadily, with a medium–term target of pushing past the 100 aircraft mark. Most of its clients are in Europe and North and South America (and which currently include Air France, BA, Delta and US Airways), so a major aim is to build up a client base in Asia. It currently has around nine 737s available to lease, most of which were manufactured in the 1970s and 1980s. Dublin–based Pembroke has a fleet of 20 owned and 59 managed aircraft worth around $2.5bn, which are placed with 30 airlines around the globe. It is a narrowbody specialist, with its fleet comprising five A320s, six A321s, 12 717s, 31 737s, five 767s, two MD- 83s, five CRJs, seven F100s and six RJ–85s.

Aircastle

Pembroke was launched in 1993 and had been owned 50% by GATX Capital and 50% by Rolls–Royce, but by early 2006 neither company regarded Pembroke as a core asset, and so in July 2006 Pembroke was sold to its existing management team, led by CEO Garry Burke, through an investment vehicle called Medulla Asset Managers. After the MBO Burke said that Pembroke wanted to double its portfolio of owned aircraft "in a relatively short space of time", but this September Standard Chartered announced it had agreed a deal to buy Pembroke from Medulla Asset Managers before the end of 2007 for an undisclosed sum. Connecticut–based Aircastle was launched in 2004 by the Fortress Investment Group, which currently own 80% of equity after the lessor raised $209m in an IPO on the NYSE in August last year, used largely to repay debt. In February it made a secondary sale of stock to raise another $512m, which is also being used to repay debt.

Aircastle has a portfolio of 100 mostly passenger aircraft worth $2.7bn. They are placed with just under 50 clients in 27 countries, with the two largest clients being US Airways and Hainan Airlines, which accounted for 22% and 8% respectively of revenue of $189m in 2006, although 45% of the current portfolio by book value is with European clients and 23% with Asian airlines.

In January this year Aircastle agreed to buy 38 aircraft with an average age of 10 years from the Guggenheim Aviation Investment Fund for $1.6bn, of which 28 aircraft will be transferred in 2007 and all the rest by February 2009. These are currently with 16 customers in 12 countries, and almost two–thirds of these aircraft are freighters. At the Paris air show Aircastle ordered 15 A330–200 freighters, for delivery in 2010–2011.

BOC Aviation (formerly SALE)

Aircastle has 53 employees and offices in Dublin and Singapore, and in the first six months of 2007 reported revenue of $155m (compared with $72m in 1H 2006) and a net profit of $59.6m ($16.2m in 1H 2006). The Bank of China bought 100% of Singapore Aircraft Leasing Enterprise (SALE) in December last year from its then owners — Singapore Airlines (which owned 35.5%), WestLB (35.5%), Temasek Holdings (14.5%) and the Government of Singapore Investment Corporation (14.5%) — for the sum of $965m, after those entities decided to maximise a profitable exit at the peak of the leasing cycle.

The Bank of China says it wants to "accelerate the expansion" of the lessor (which changed its named to BOC Aviation in July) with a doubling of the portfolio over the next five years, and indeed in January this year BOC placed an order for 40 narrowbodies — 20 A320s and 20 737NGs, all for delivery between the second quarter of 2009 and the first quarter of 2012. The 737 order is an exercise of previously- placed purchase rights, and with 23 other 737s on order, the total firm order book now stands at 63 aircraft. BOC says that it is likely to place other orders, potentially to include a requirement for widebody aircraft.

BOC currently has a fleet of 74 aircraft (60 of which are owned) that have an average age of three and a half years, which makes it among the youngest lessor fleets in the world. The vast majority of the portfolio are narrowbodies, with 50 A320s, 10 737s, seven A330s, a single 747–400F and six 777s. They are placed with more than 30 airlines around the world, and the lessor has offices in the UK (at Heathrow) and in the US (in Seattle, San Diego and Washington DC). According to BOC it has A320s and 737s "available for lease in 2007 and 2008".

Genesis Lease

In the financial year ending March 2007, BOC recorded record net profits of US$70.5m, more than double the US$34.7m net profit of 2005/06. This came from US$341m of revenue, 34% higher than in 2005/06. BOC says that "investor appetite in aircraft ownership also rebounded strongly during the year", and as a result the lessor sold 17 of its older aircraft in 2006, with nine new aircraft coming in as replacements. Shannon–based Genesis was established in 2006 with portfolio of 41 aircraft — 20 737s, 14 A320 family, one A330, two 747s, two 767s, two ERJs — that it acquired from parent GECAS prior to its IPO carried out in December 2006 on the New York stock exchange. The net proceeds of the float (which raised $641m gross) as well as a placement of $79m of shares with General Electric (which now has an 11% stake) and an $810m securitisation were used to pay for the 41–strong aircraft portfolio, which has an average age of five years.

Guggenheim Aviation Partners (GAP)

In April Genesis agreed a $1bn credit facility with a syndicate of lenders to fund future growth, and in September increased its portfolio to 53 aircraft (leased to 34 airlines) when it bought two A319s, three A320s and three 737–700s from GECAS. GAP was launched in 2003 and is owned by Guggenheim Partners, a diversified financial services company whose aviation interests increased this May when it partnered with UBS to launch a specialist aviation financing company for corporate jets called GaFCo.

Alafco

GAP currently has a portfolio of 40 aircraft with an asset value of more than $1bn. About half its business is in the purchase and conversion of passenger aircraft into freighters, which it says "is a market that currently is under–served". The lessor has steadily built up a portfolio of aircraft and in October 2006 ordered four 747–8Fs (plus two options), adding to three 747s already on order. In December 2006 it followed this up with an order for three 777Fs (plus one option) at a list price of $708m, and in January this year it placed an order for six A330–200Fs. Kuwait–based Alafco — owned by the Kuwait Finance House — is a specialist in Sharia–based leasing and is planning a substantial expansion of its fleet, with a planned portfolio of 50 aircraft by 2010 and 80 by 2015. In 2005 it placed an order worth $2.9bn for 12 A350s plus six options, and in 2006 it added nine aircraft to the portfolio (five new 737–800s and a A320, and three second–hand 777- 200ERs), and sold two A310s, thereby increasing the owned fleet to 19 aircraft (nine 737–800s, four 777s, three A310s, three A320s), with 14 other managed for clients.

Oasis

The portfolio is worth an estimated $840m and placed mostly with nine customers in Asia and the Middle East (with five aircraft at Chinese airlines and three with Air India). Alafco was also listed on the Kuwait stock exchange in 2006, and a sign of its ambition was shown in March this year when it placed an order for 12 787–8s (plus six options) and six 737- 800s (plus six options) at list prices of $3.5bn. In June it ordered seven more A320s (joining six A320s already on order) and in July added 10 more 787–8s, bringing total outstanding orders to 53 aircraft, with at least 10 of these being delivered this year. The lessor suffered a blow this August when a planned deal to place 19 aircraft with Kuwait Airways (which owns 11% of Alafco) was cancelled by the Kuwait government, although Alafco insists it will have no problem in finding replacement customers for the aircraft. Abu Dhabi–based Oasis International Leasing was founded 1997 by the Abu Dhabi Investment Company, BAe and the Gulf Investment Corporation, and is listed on the Abu Dhabi stock exchange. Oasis does "big–ticket" business in the aviation, shipping and infrastructure sectors, and in 2006 reported a 240% rise in net profit, to $26.1m.

Other lessors

Oasis currently has a portfolio of 26 aircraft — two A319s, six A320s, one A321, six A330s, two A340s, five 737s, two 777s and two CRJ–100s — all but two of which are placed with customers around the world. However, much of Oasis’s business is still with Middle Eastern airlines such as Emirates, Etihad, NAS and Sama, and the lessor is trying to diversify its portfolio as much as possible. To help with this, in February Oasis appointed Erik Dahmen — previously EMEA managing director for lessor BCI — as its senior marketing director. GA Telesis is a Florida–based lessor with more than 90 aircraft, while World Star Aviation is based in San Francisco and manages a fleet of 58 mixed passenger and freight aircraft for 26 airlines in 16 countries. In the UK,Aircraft Leasing and Management manages 58 aircraft for clients.

Jetran is based in Texas with a 57- strong fleet of 737s, MD80s and DC–9s, while another Texas–based lessor is Q Aviation. The latter was founded in 2003 by investment management company Q Investments, but in September last year said it was looking to sell its portfolio of 45 aircraft (two thirds of which are narrowbodies), which have an asset value of around $1bn. The aircraft are placed with a variety of clients, including United, Northwest and US Airways, and Q has reportedly instructed Deutsche Bank to find a buyer for its assets; in September eight aircraft were sold to ORIX.

Sumisho Aircraft Asset Managementis the Netherlands–based subsidiary of the Sumitomo Corporation, and has a mixed fleet of 50 aircraft, while South African lessor SAFAIR has a portfolio of 44 narrowbody aircraft and Australia's Allco Finance has 41 aircraft.

New York–based Deutsche Bank Equipment Leasing has 40 737 and A320 aircraft in its portfolio, while Dublin–based Aergo Capital, launched in 1999, is also a narrowbody specialist, with a portfolio of 36 aircraft, (comprising 19 737–200s, 15 737- 200s and two 737–400s) that are leased to clients that include LanChile, Alitalia, Merpati and AdamAir.

JetWorks Leasing is based in Connecticut and was launched in 2005 by former founders of Boullioun Aviation Services. It has a portfolio of 33 mixed aircraft, including freighters, narrowbodies and widebodies. Texan lessor Aircorp has 32 Boeing aircraft, while Airbus Asset Management re–markets used aircraft for Airbus, with an estimated 30 aircraft in its portfolio.

Formerly known as Sunrock, Sojitz Aircraft Leasing is a subsidiary of Japan’s Nissho Iwai Corporation and has a fleet of 23 Boeing aircraft.

Volito Aviation is a Malmo–based lessor formed in 2001 that has a portfolio of 22 owned and managed narrowbodies, placed with 15 clients in Asia, Europe and the Americas, which intends to increase its portfolio to 50 aircraft within the next year. Earlier this year it said it was planning to combine 17 of the aircraft in its portfolio with 18 aircraft owned by the Goldman Sachs Special Situations Group to form a new leasing company called VSG Holdings.

Munich–based Bavaria International Aircraft Leasing — which started off as a charter airline back in 1958 and is owned by German corporate group Schorghuber — has a fleet of 21 narrowbody aircraft, comprising 717s, 737s and A320s. They are all currently with clients, with the latest placement being a 737–700 that Bavaria leased to Sterling Airlines from this May. At the end of 2005 it had 30 aircraft, but in October 2006 it sold its entire fleet of eight 737–300s (on lease to Varig) to US–based Matlin Patterson, which describes itself as a "global distressed private equity firm".

Florida–based Jetscape was launched in 2001 by team that previously built up Indigo Aviation and has 19 aircraft on lease to 16 airlines in 13 countries. Another US–based company is Republic Financial, with an estimated 17–strong portfolio. Goal is based in Munich and was launched in 1998 as a joint venture between Lufthansa (which owns 40%) and KG Allgemeine Leasing (60%), and currently has a portfolio of 14 aircraft — eight 737s, one 757s and five A310s.

Automatic is headquartered in Florida and has a portfolio of 10 aircraft, while Seattle–based Itochu Airlease also has 10 aircraft. California–based company Tombo Aviation (owned by Japan’s Matsui & Co) has a portfolio of 10 aircraft, while Deutsche Structured Finance has approximately 10 aircraft in its portfolio.

New entrants

Two UK lessors are Skytech-AIC, with a fleet of nine aircraft, and Central Air Leasing, with eight MD11s. Also with eight aircraft is Singapore–based Aerostar Leasing. Among the wave of new entrant lessors are Dubai–based LCAL (Low-Cost Aircraft Leasing), which was set up in 2005 by a group of shareholders that include the Al- Jomaih Group of Saudi Arabia. It is a 787 specialist, and placed its first order for six 787–8s at the Dubai air show in 2005. It added an order for eight 787–9s at the end of 2005 and another 787–9 in March 2007, bringing the total order book to 15, and recently announced that it has placed the first three of its incoming aircraft with Royal Jordanian, for delivery in 2011.

In April this year US private equity house Oak Hill Capital Partners placed an order for six 777 freighters worth $1.4bn at list prices, for "a new aircraft leasing platform". In May US–based Bravia Capital Partners launched an aircraft leasing joint venture with IL&FS, an Indian Bank, which will "serve the aircraft fleet requirements of the rapidly growing Indian airline market", while DAE Capital is the aircraft leasing part ofDubai Aerospace Enterprise,which was launched in 2006 to build up a series of aviation businesses. DAE Capital tried unsuccessfully to buy SALE and was believed to be interested in Pegasus, and in April this year appointed Robert Genise, former CEO of Boullioun, as its chief executive. It is aiming to build up a portfolio of 125 aircraft over the next five years, and is expected to announce a substantial order for new aircraft at the Dubai air show in November this year.

This June US lessor Intrepid Aviation ordered 20 A330–200 freighters, with delivery from 2010 onwards, while in the same month Germany’s HSH Nordbank announced a $1.3bn aircraft fund that will invest in up to 30 narrowbody aircraft, saying that "the timing for an entry into the market is good". The portfolio will be managed by Amentum Capital, a subsidiary of HSH Nordbank and Deutsche Anlagen Leasing (DAL).

In November 2006 AerCap set up Dragon Aviation, a China aircraft leasing joint venture with the China Aviation Supplies Import & Export Group Corporation (CASGC) and Calyon Airfinance, a specialist subsidiary of Credit Agricole. Dragon Aviation is based in Beijing (and for tax reasons has an associated company in Shannon) and will specialise in narrowbody aircraft that are being demanded by the growing Chinese aviation sector. It intends to build up a portfolio of $1bn worth of aircraft over the next few years, and will compete with Shenzhen Financial Leasing, which leases an unknown number of 737s to Chinese airlines, and a wave of new aircraft lessors that four or five leading Chinese banks aim to set up over the next 12 months